Define the term liquidity problem (line 111)
Liquidity is how quickly and cheaply an asset can be converted to cash, a liquidity problem is when a country's government or a bank runs short of cash , and has short term debt problems but is secure in the long term.
Teacher's comment: A better answer would be...Liquidity refers to the buisness' ability to pay its debts. A liquidity problem (as identified by either the current ratio or acid test ratio) indicates an inability to pay short term or immediate debts.
Calculate N-Pharma's subsidiary's working capital for both of the years 2008 and 2009.
Working capital = Current Assets - Current Liabilities Year 2008
Working capital = (190+310+250) – (620+115)
Working capital = 750 – 735
Working capital = $15m
Year 2009
Working capital = (60+350+356) – (630+230)
Working capital = 766 - 860
Working capital = $(94)m
Using liquidity ratios, comment on N-Pharma's current liquidity position.
Using the data from appendix 2, calculate the liquidity ratios of N-Pharma’s USA subsidiary in the financial years 2008 and 2009.
Year 2008 Current ratio= Current Assets Current Liabilities Current assets Current Liabilities Stock = 250Creditors = 620 Debtor = 310Short-term borrowing = 115 Cash = 190 Total = 750Total = 735 Current ratio = 750 735 Current ratio = 1.02
Acid test (quick) ratio= Current assets – Stock Current liabilities Acid test (quick) ratio = 750 – 250 735 Acid test (quick) ratio = 500 735 Acid test (quick) ratio = 0.68
Year 2009 Current ratio= Current Assets Current Liabilities Current assets Current Liabilities Stock = 356Creditors = 630 Debtor = 350Short-term borrowing = 230 Cash = 60 Total = 766Total = 860 Current ratio = 766 860 Current ratio = 0.89
Acid test (quick) ratio= Current assets – Stock Current liabilities Acid test (quick) ratio = 766 - 356 860 Acid test (quick) ratio = 410 860 Acid test (quick) ratio = 0.48
Analyse the reasons for the changes in the liquidity ratios of N-Pharma’s USA subsidiary between 2008 and 2009
Explain why organizations such as N-Pharma need working capital
Working capital, which refers to the money that is available for the day to day running of a business, is important as a source of finance because it is needed to pay for everyday costs such as wages, utility bills, and payments to suppliers. In this case it allows N-Pharma to run successfully.
Discuss methods by which N Pharma might use to improve the liquidity position of its USA subsidiary
Define the term liquidity problem (line 111)
Liquidity is how quickly and cheaply an asset can be converted to cash, a liquidity problem is when a country's government or a bank runs short of cash , and has short term debt problems but is secure in the long term.
Teacher's comment: A better answer would be...Liquidity refers to the buisness' ability to pay its debts. A liquidity problem (as identified by either the current ratio or acid test ratio) indicates an inability to pay short term or immediate debts.
Calculate N-Pharma's subsidiary's working capital for both of the years 2008 and 2009.
Working capital = Current Assets - Current Liabilities
Year 2008
Working capital = (190+310+250) – (620+115)
Working capital = 750 – 735
Working capital = $15m
Year 2009
Working capital = (60+350+356) – (630+230)
Working capital = 766 - 860
Working capital = $(94)m
Using liquidity ratios, comment on N-Pharma's current liquidity position.
Using the data from appendix 2, calculate the liquidity ratios of N-Pharma’s USA subsidiary in the financial years 2008 and 2009.
Year 2008
Current ratio= Current Assets
Current Liabilities
Current assets Current Liabilities
Stock = 250 Creditors = 620
Debtor = 310 Short-term borrowing = 115
Cash = 190
Total = 750 Total = 735
Current ratio = 750
735
Current ratio = 1.02
Acid test (quick) ratio= Current assets – Stock
Current liabilities
Acid test (quick) ratio = 750 – 250
735
Acid test (quick) ratio = 500
735
Acid test (quick) ratio = 0.68
Year 2009
Current ratio= Current Assets
Current Liabilities
Current assets Current Liabilities
Stock = 356 Creditors = 630
Debtor = 350 Short-term borrowing = 230
Cash = 60
Total = 766 Total = 860
Current ratio = 766
860
Current ratio = 0.89
Acid test (quick) ratio= Current assets – Stock
Current liabilities
Acid test (quick) ratio = 766 - 356
860
Acid test (quick) ratio = 410
860
Acid test (quick) ratio = 0.48
Analyse the reasons for the changes in the liquidity ratios of N-Pharma’s USA subsidiary between 2008 and 2009
Explain why organizations such as N-Pharma need working capital
Working capital, which refers to the money that is available for the day to day running of a business, is important as a source of finance because it is needed to pay for everyday costs such as wages, utility bills, and payments to suppliers. In this case it allows N-Pharma to run successfully.
Discuss methods by which N Pharma might use to improve the liquidity position of its USA subsidiary